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The pace of change in advisor technology has never been greater, nor has the technological disparity among financial services firms. At one end of the spectrum, some firms are still using hardware and software originally developed and deployed in the 1980s. At the other end, we have firms deploying software that didn’t even exist in the financial advisor space a few years ago. Below, we discuss a few of the technology trends shaping the industry today. We believe that all of these trends will play a role in the future success of financial advisory firms in 2016 and beyond.

The Evolution of Digital Advice Ad Digital Advice Platforms

Attitudes toward robo-advisors and other digital advice platforms within the industry are evolving rapidly. As recently as two years ago, most industry executives and advisors were still skeptical of these platforms. That is no longer the case. 

On the retail side, firms such as Wealthfront and Betterment continue to refine and improve their offerings, and new players continue to emerge. Some of the newer entrants are focusing their efforts on a specific market niche. For example, SheCapital and Ellevest are two direct-to-consumer robo-advisors marketing directly to women. As the retail space becomes increasingly crowded, we expect to see other firms deploy niche strategies to differentiate themselves. Although we’ve yet to see a proliferation of niche strategies among advisors deploying their own digital platforms, the developments on the retail side may be a harbinger of things to come on the advisor side of the business.

The retail offerings from new entrants have acted as a catalyst, spurring digital advice platform development from established financial services firms. Schwab Intelligent Portfolios has enjoyed a successful launch. More than 500 firms have signed up to use Institutional Intelligent Portfolios to date. Although Schwab does not break out advisor and retail assets on the platform, at the end of the first quarter of 2016 assets totaled $6.6 billion, up $1.3 billion from the fourth quarter of 2015.

TD Ameritrade is in the process of upgrading Amerivest for a relaunch. Fidelity is currently piloting Fidelity Go. In addition, Vanguard continues to enjoy great success with its Personal Advisor Services platform. 

All this activity is spurring independent and independent broker-dealers to respond. The U.S. Department of Labor’s fiduciary rule has been an added catalyst for the development of digital advice platforms, particularly among independent broker-dealers. Ladenburg Thalmann (the parent of Securities America and Triad Advisors) recently launched $ymbil, its initial foray into the robo-advice space. $ymbil differs from most other offerings to date. Instead of getting a portfolio of ETFs, clients are invested in one of five funds of funds tailored to various risk tolerances. LPL, the nation’s largest independent B-D, recently announced that BlackRock’s FutureAdvisor would power its robo-offering, though its investment portfolios would be constructed by LPL’s investment professionals. The offering is expected to launch in the second half of 2016. 

If all this is not enough to spur independent RIAs to get into the robo game, a recent alliance between UBS Financial and SigFig should be. Some have argued that the current digital advice platforms are not geared toward the wealthier clients that RIAs typically serve, but the UBS/SigFig alliance is reportedly working on a product that will address the needs of ultra-wealthy clients. 

The majority of advisors I’ve spoken with lately are planning to roll out a robo-like solution soon, but many seem to be struggling with how to best incorporate these new tools into their practices. So far, the majority are leaning toward using the new digital platforms, at least initially, to attract new millennial clients or to serve current clients with smaller accounts. A smaller number are looking to review their overall technology and operations to see if the newer digital platforms can replace some core existing systems and processes. 

There are numerous providers of digital platforms vying to provide digital services to advisors. They include Schwab Institutional Intelligent Portfolios, Autopilot (powered by CLS and Riskalyze), Betterment Institutional, Jemstep/Invesco, NestEgg/Vanare, Envestnet’s Advisor Now, Folio Institutional’s Advisor Connexion, Marstone, Wealthminder and Trizic. While not robo-advisors, other firms that can provide a modern user experience for advisors or their clients include Advyzon, Capitect and Oranj. We expect to see more advisors rolling out digital solutions under their own branding in the latter half of 2016 and beyond.

“We’ve seen a marked shift in advisor behavior recently,” says Chris LaVine of Marstone. “When we first announced our Powered by Marstone platform last year, there was a lot of interest from firms trying to understand what digital advice actually meant. Less than a year later, we’ve seen that interest and excitement convert to demand. We are actively engaged with several institutions who are looking to deploy a digital solution this year. This shift has been influenced by many things, including the latest DOL fiduciary ruling and a pressing desire from consumers for a digital platform.”

He adds that in his 25-year career building technology and investment platforms for advisors, he has never seen such an insatiable appetite for digital products that improve the client experience. “The demand is coming from every size and type of financial services firm—from independent RIAs, IBDs, wirehouses, regional and national banks, insurance companies and asset managers. And not just from North America. It is literally coming from every market around the globe.”

It is also worth noting that product manufacturers such as BlackRock, Invesco and Northwestern Mutual have all purchased digital advice platforms. This is clearly a distribution play on the part of those firms, and we suspect that competitors will be compelled to follow suit by buying, partnering or building their own. This should create additional competition in the space, which in turn will spur innovation and lead to better technology platform options for advisors and their clients.

Improving The Client Experience

The fintech revolution is impacting the industry on multiple fronts, but perhaps none more than the user experience. For years, both advisors and the technology firms that served them lived in a largely insular world. Technology products competed primarily on features and price. Little attention was paid to the user experience. Advisory firms were competing against other advisory firms whose technology offered the same user experience as theirs, so there was little incentive to innovate in this area. 

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